Wednesday, December 9, 2009

Moody's cuts credit ratings on Dubai state-controlled companies

RATINGS agency Moody's Investors Service has downgraded the credit worthiness of a raft of Dubai government-controlled companies, citing a lack of government support over the emirate's debt obligations.

The cost of insuring Dubai sovereign debt against default rose on the news.

Indeed, the country's credit-default swap spreads -- a key measure of credit risk -- stood at around 540 basis points late in northern hemisphere trading, which is nearly 40 basis points wider on the day.

"This rating action follows recent comments and statements from government officials, which cause us to believe that no meaningful government support should be assumed for any entity that is not directly part of or formally guaranteed by the government," said Philipp Lotter, senior vice-president for Gulf corporates at Moody's in Dubai.

DP World issuer and debt ratings were downgraded to Ba1 from Baa2; DEWA ratings were lowered to Ba2 from Baa2; Jebel Ali Free Zone to B1 from Ba1; and Dubai Holding Commercial Operations Group to B1 from Ba2. At the same time, Moody's downgraded Emaar Properties issuer ratings to B1 from Ba2 and DIFC Investments to B2 from Ba1.

The downgrades come after the Dubai government announced last week that it will seek a six-month payment freeze on debts of one of its biggest conglomerates Dubai World, which owns real-estate developer Nakheel. The company is estimated to have liabilities close to $US60 billion ($66bn), of which $US26bn is debt.

The Dubai government has since said it wouldn't guarantee the debts of Dubai World.

Moody's said it also downgraded various baseline credit assessments to reflect "increased liquidity challenges in a tougher financing environment that we expect will continue for a protracted period", and "the longer term implications thereof on Dubai's economy".

It also reduced the government support assumptions for all six issuers, Moody's said.

"All ratings now reflect the respective company's stand-alone credit profile with the exception of Dubai Electricity and Water Authority and DIFC Investments," Moody's said.

These ratings include one notch uplift for government support recognizing their stronger strategic linkage to Dubai's core economic development policies, it said.